Number of Mortgages in Default Increase in Iceland Skip to content

Number of Mortgages in Default Increase in Iceland

Twenty percent of mortgages at the three largest banks in Iceland are currently in default or in a state of non-payment. The government is planning to find an overall solution to the financial difficulties of households, not just in terms of mortgages but also car loans.

Central Reykjavík. Photo by Páll Stefánsson.

A committee on behalf of three ministries has been working on such a solution since the beginning of August, examining how successful the solutions that have already been offered have proven. The committee is expected to present new ideas shortly, Fréttabladid reports.

“It is a matter of priority and emphasis will be placed on reacting to the debt problems of households, both mortgages and car loans,” said Minister of Business Affairs Gylfi Magnússon.

“Radical measures must be undertaken, which might involve writing off debts, either with formal payment adjustment or with a strategy created by the institutions in question, which works out for their customers,” the minister added.

The members of the committee have come to the conclusion that it is inescapable to look at car loans the same way as mortgages, otherwise equality isn’t guaranteed.

A flat cut on debts is not being considered—the state isn’t capable of such measures—so it is likely that banks and loan institutes will be given authority to provide solutions on their own terms and the terms of their debtors.

According to an evaluation undertaken by the Central Bank for the Ministry of Business Affairs in July, 40,414 individuals have car loans in foreign currency partly or entirely. These loans are worth ISK 115 billion (USD 900 million, EUR 570 million) in total.

Currency-indexed commercial papers to households amounted to ISK 315 billion (USD 2.5 billion, EUR 1.6 billion) in September 2008, of which ISK 107 billion (USD 840 million, EUR 530 million) were defined as mortgages in foreign currency, according to a statement made by the minister of social affairs at the Althingi parliament in February.

Click here to read more about ideas on writing off household debt.

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